Traders work on the trading floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Fate of sick lender after tense days first republic Finally made up my mind, senior banking analyst Christopher McGraty Expect some peace.
Earlier Tuesday, 24 hours after U.S. regulators seized First Republic and selected JPMorgan To take over most of its assets, McGraty traveled to Manhattan to visit a client. Minutes into regular trading, however, shares of regional banks he covers for KBW began to tumble.
“I was like, ‘Hey, this is a good day to catch up, this seems to be a day of order,'” McGraty said in a phone interview. “I went back to my desk and had 40 emails and 10 voicemails and my screen was all red.”
The sharp sell-off in regional bank stocks sparked by the collapse of Silicon Valley Bank in March was repeated Tuesday, catching Wall Street analysts and investors off guard. An orderly settlement of the First Republic by the largest U.S. bank should have quelled concerns about the state of the U.S. banking system, not reignited them.
A sharp decline– west Pacific Shares plunged 28% to record lows on Tuesday, while Western Union 15% lost – In the absence of new news, banking experts are starting to wonder why this happened.
Concerns about uninsured deposits, concerns about commercial real estate and upcoming regulation have all been cited as possible triggers.
Others pointed to pressure from short sellers.That’s it Peter OrsagerFinancial Advisor CEO Lazard A person conducting rescue efforts on behalf of the First Republic told CNBC’s Sara Eisen on Tuesday.
“People are looking for answers, and no one has a good answer,” said McGraty, head of research at KBW Bank of America, who has been researching the industry for nearly 20 years.
PacWest and Western Alliance recently reported first-quarter results and updated figures through mid-April, initially allaying investor concerns about deposit outflows. But he said the current moment was more about human emotion than how banks were assessed in normal times.
After the SVB seizure, “the market is looking for the next potential domino”, Signatures and the First Republic, McGraty said.
“We’re in a situation a lot like March where we’re trading stocks based on fear and sentiment rather than fundamentals,” he added.
That doesn’t lessen the danger for mid-sized banks. Analysts such as McGratty and Evercore ISI’s John Pancari said the pressure on bank stocks could lead to customers withdrawing deposits from their institutions again.
“While we are confident in banks’ liquidity and capital levels post-Q1, we cannot ignore the risk that market pressure on bank equity valuations could fuel a self-fulfilling prophecy,” Pancari said in a research note on Tuesday. .
Shares of PacWest and Western Alliance rallied Wednesday. The KBW regional banking index also climbed.
The events of March showed that bank failures could be happening sooner than anyone expected.
Digital banking tools and fears fueled by social media intensify Deposits fled from banks, including SVB, as customers attempted to withdraw more than $140 billion in deposits in two days.
That’s why McGraty said he still bears the scars of the 2008 financial crisis, saying the current turmoil is scarier in at least one important respect than that period 15 years ago.
Bad loans were the root cause of previous crises and it could take months for a bank to fail, he said.
But a customer-led deposit run “can kill you in 36 hours, like what happened at SVB,” he said. “It just shows you how fragile everything is.”